We’ve all played the desert island game. The one designed to uncover insights about individuals based on the one item, book, movie, etc., they would bring with them if they were stranded on a desert island. But what if we used this game to uncover insights about your business? If you could have only one key performance indicator on your business, what would it be?
It’s a trick question. There are two KPIs every professional service business should measure when assessing the health of their company: backlog and pipeline. These forward-looking measurements are enough to paint a full picture of how your business is performing without overwhelming your team to the point of paralyzation.
Doing Too Much
The risk of paralyzation is exactly why the desert-island question is so important. Most leadership teams have a laundry list of indicators they want to understand about the business. More often than not, the list becomes too intimidating to act on, so they fall back on the same number they’ve always used to judge the health of the business: the revenue forecast.
These revenue forecasts are generally based solely on financial statements, which is problematic because financial statements offer only backward-looking data that doesn’t dive deep enough to formulate an accurate forecast. And future-focused, growth-oriented companies looking to continuously improve their business need more than backward-looking data can offer.
The Big Two
Backlog and pipeline are predictive. The former is essential for the sheer amount of information held in one measurement. It tells you how much work you have in your firm or agency, but also the timing of that work, the resources needed to complete it and projected margins based on cost of completion and timing of billables.
Similarly, the pipeline KPI takes this full picture of timing, utilization and projected margins one level deeper to give you the full story of where your business is headed.
Planning for Forecast
The first opportunity to start gathering the data you’ll need to measure these essential KPIs is in the proposal stage. This is the first time in the sales process you start to understand how the work could impact your pipeline. It’s the proposal that defines the timing, the resources, and, ultimately, the projected margin.
A smooth hand-off between your sales team and delivery turns the proposal into data you can use to forecast your pipeline. The key to facilitating this handoff is integrating your customer relationship management (CRM) system (which handles information in the proposal phase) with your professional services automation (PSA) system where you can project the resources you’ll need to complete each project.
From Metrics to Action
Failure to transition data from sales (proposal) to delivery can create imbalances in utilization. But a successful transition allows you to pull reports around your backlog and pipeline to answer questions that will help you plan both your resourcing and sales strategy. What business are you selling? What is the mix of services? What resources will you need to support these services? What is the projected margin on these services?
These reports can provide insights you need to manage
Your backlog should inform conversations with your clients as you discuss deadlines and lead time, so you don’t overcommit and position your team to underdeliver.
Use the data to identify gaps in productivity as projects get delayed or put on pause, so you can predict and balance utilization, stacking projects with other backlog and pipeline work accordingly.
Understand what types of services you’re selling and how your talent aligns with those services to inform hiring and subcontracting decisions.
Because these KPIs go beyond revenue predictions to calculate projected margins, you can assess the profitability of the services you’re selling to develop a sales (and hiring) strategy that focuses on services with the best profit margins.
By focusing on backlog and pipeline, you get the insights you need to make some very impactful decisions. They allow you to turn passive reporting into active, forward-looking analytics as you position your organization for growth. If this forward-looking approach intrigues you, take a look at Analyzing the Performance of a Services Business
to get even more detail around how the right KPIs can help maximize the value of your business.
Mike Mattiuz is the SVP of Relationship Development at Modacto, a certified Salesforce Silver Consulting Partner based in Minneapolis. Modacto provides expert guidance on implementation and optimization of the Salesforce platform to help growth-minded companies accelerate and achieve their unique objectives.